Mortgage Securities: Investing For Value in a Turbulent Environment

Those people who are seeking buying opportunities in mortgage-related securities, or in interest-sensitive assets will have plenty of opportunities (and a considerable amount of time), to dip in, and go long, again. Although this first phase of the liquidation process is almost over, the spillover from this meltdown seems likely to endure for years.

As long as it didn't come as a complete surprise, investors ought to step back, and let the leveraged longs wreak some havoc with each others' portfolios as they crowd the exits. In a single-digit return world for stocks (and bonds), it will take some time to unwind the same positions that accounted for a good part of the extraordinary returns of the broker dealers, private equity honchos, and the rest of the masters of the universe on their way to ungodly prosperity and riches.

Unfortunately greed isn't only the provenance of the chosen few who attended Harvard, and Wharton. Those investors who doubled down on real estate properties on the gold coast of N.J., and elsewhere, will soon see margin calls on their own properties, as rental income will fall just a bit short of making the grade. If you have any doubts, then you should look at Hovnanian Enterprises Inc. (HOV), Lennar Corp. (LEN), and other homebuilders to see what is in store for property values.

In the real world of investing for value, there are pockets of opportunities at modest risk which could provide an average of 10% to 15% in annual returns over time (five years), provided that there is not a cataclysmic collapse in financial assets, or of the dollar. Contrary to conventional views, the Government Sponsored Enterprises [GSE] such as Fannie Mae (FNM), and Freddie Mac (FRE), may offer the best all around return among financial stocks. This is that same view that I presented back in January.

Comments

[jbs:]

turbulEnt

2007 Jun 26 12:03 PM